With value stocks and funds outperforming most of the market over the past few years very little attention has been given to the growth sector. While it makes sense to stick with what is working the best it still is a good idea to keep your asset allocation in check and that includes some growth. Don’t let the name fool you, but the T. Rowe Price Spectrum Growth (PRSGX) is more of a blend fund that is actually a collection of various T. Rowe Price offerings.
While the fund is focused on an overall collection of large-cap growth stocks, it has been able to boost performance while reducing volatility by incorporating many other funds from the family. The Spectrum Growth fund holds a good portion of value, equity income and emerging market stocks that keep this from being a strict large-cap growth fund.
- Manager: Various sub-advisors
- Min. Initial Investment: $2,500 / $1,000 IRA
- Front-Load: None
- 12(b)-1 Fee: None
- Expense Ratio: 0.81%
- Assets: $3.57 billion
- Average Market Cap: $22 billion
- Turnover: 8%
Looking at the past few years this fund has done quite well for what is considered a growth fund. It has outperformed similar funds in the same category in each of the past years ranging from 2-6%. Overall it has even outperformed the S&P 500 by similar margins. So, how can a growth or even balanced fund of funds outperform its peers and the broad market when value has clearly been the big winner?
The answer comes from a few different places. First, it isn’t restricted to the very large companies that the S&P tracks and many large growth funds invest in. Since this is a fund of funds it does have some exposure to smaller cap companies as well. This has provided a nice boost in returns over the past five years. Another key factor in these returns is some exposure to foreign markets and high yielding bonds. While these are not significant portions of the portfolio they too provide a boost where pure growth stocks may be lacking.
No matter how you slice it the 3 and 5-year annualized returns of 15.59% and 11.23% respectively are nothing to sneeze at. Even looking back further to the years 2000-2002 when the equity markets saw significant declines this fund fared better and still outperformed the S&P by 2.4-4% margins. While it may not have the explosive upside potential of a pure style fund the diversification allows it to regularly keep pace with the market with some additional downside protection.
- No load
- Expense ratio lower than category average
- Below average volatility
- Competitive yield for a growth-heavy portfolio
- Solid returns
- Morningstar 5 star rated
- Not a pure growth fund if that is what you are looking for
- Exposure to foreign investments could hold fund back when international returns lag
- More conservative approach may hold fund back when speculative stocks shine
The Bottom Line
If you are like most investors you have probably turned your focus in recent years to value and international investments where double digit returns can be easily had. The very modest returns in the growth sector has not been very attractive. Experts tend to disagree a bit as to where we are headed; whether growth is going to begin to dominate or if the value trend will continue.
We know that these do tend to run in cycles and during an extended period of one category performing well we can become overweight in our holdings which will leave a gap when the trend reverses. So if you are looking to rebalance your portfolio to ensure it contains some growth stocks again this is a fine option. Since it isn’t a strict growth fund you will see the better returns while still having a position in place ready to take advantage of the market when growth companies move back into dominance.
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Filed Under: Fund Reviews
About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.